Interest-only property loans have been popular in recent years, particularly among investors who have wanted to keep their repayments to a bare minimum. But what happens when an interest-only period expires?
For most it will mean that they will need to get ready for higher repayments. An interest-only loan usually only lasts for a fixed period of 5-10 years, after which time the loan reverts to a principal and interest loan.
Making the higher repayments will help property owners chip away at their home loan and start building their equity, but the higher repayments can come as a shock but there are ways to prepare.
Find out when payments will change – If you currently have an interest-only loan then confirm where you stand with your lender. Find out exactly when the period will end and what your new repayments will be. If you want to hold off on paying the principal then you should discuss the possibility of extending your interest-only period with your lender, or start looking elsewhere.
Reassess your budget– If you live by a strict budget, it’s time to prepare by making changes to accommodate higher loan repayments. If you live week-to-week, it’d be a smart move to think about your spending habits and where you can redirect funds from to cover the difference in loan repayments.
Research other loans– Deals are out there. You just have to find them. Find out if there are more competitive deals being offered by other lenders by contacting them directly. It can’t help to know what your options are with multiple lenders.
Chat to your lender – Start chatting to your lender as soon as possible to find out what they can do for you going forward and don’t be shy in bringing up any better home loan products you have found in your research. Your current lender will likely want to keep your business so they may have a number of great options for you.